Closing Costs: How Do I Budget for Them?

Sujan Afi S

If you want to buy a real estate property then at the end you should pay the closing costs. Dealing with closing costs is not so easy. You need to pay the closing costs to your lender while approving the mortgage or when you close on your loan.

The closing costs in other words mean to the processing fees of a mortgage loan. As an investor or buyer if you are looking for the ways in which the closing costs can be reduce then you are in right place.

Because in this blog we will discuss how to deal with closing costs.

What is Closing Costs?

In real estate closing costs is required to assure a mortgage and it is aside the property price. Mortgage closing costs are the fees and expenses that you need to pay when you are able to secure a loan for buying a home or other real estate properties and it is beyond the down payment. 

In simple words closing costs refer the expenses which are over and above the price of a real estate property. The expenses are incur by usually both the buyer and seller to complete a real estate transaction. It is the fees that pays by the buyer and seller to complete a real estate transaction.

Although in many cases both the buyer and seller pay the closing costs but the buyer usually pay most of them. The responsibility of paying the closing costs is basically more for the buyer than seller.

The term ‘closing’ refers that the property title is transferred from the seller or developer to the buyer. Beside the costs or value of the property, the closing costs is the all necessary costs involving in the process of buying a house or a real estate property but it is beyond the cost of the property.

Beyond the property price the closing costs also refers a major expenses for the homebuyer which in many cases surprises to the homebuyer specially the first time home buyer. 

Closing costs generally includes a number of fees or costs, such as – title fees, lender fees, property fees, and insurance fees which are mentioned in detail below,

  • Attorney Fees
  • Title Service Cost(S)
  • Registration Or Recording Costs
  • Document Or Transaction Stamps Or Taxes
  • Survey Fee
  • Brokerage Commission
  • Mortgage Application Fees
  • Appraisal Fees
  • Inspection Fees
  • Home Warranties Fees
  • Private Mortgage Insurance (PMI) Fees
  • Pre-Paid Homeowner’s Property Insurance Fees
  • Pro-Rata Property Taxes
  • Pro-Rata Homeowner Association Dues
  • Pro-Rata Interest
  • Escrow Fees
  • Discount Points

How to Calculate Closing Costs?

Closing costs can be depends on a number of factors, such as – the total price of the property, the size of down payment, credit score of the buyer, the location of the property, the specific mortgage lender etc.

According to the real-estate market specialist the closing costs usually range between two per cent to five per cent of the total price of property. You can also use an online closing costs calculator for getting better ideas for calculating the amount of your total closing costs.

How to Reduce Closing Costs?

The amount of closing costs is not small. Beyond the property price it also required a lump sum of money. As a buyer or investor you will always may searching the ways in which the closing costs can be reduce. Don’t worry here are some suggestions through which you can lower down your closing costs, such as –  

  1. Negotiating attorney fees: A good negotiation of attorney fees may successfully reduce your closing costs.
  2. Compare the lender: Before ensuring the mortgage loan you need to compare the lender’s fees. On the basis of the information you receive from various lender you can effectively made the negotiation of fees like escrow agent fees, loan originating fees etc. while bargaining with the lender.
  3. Ask the seller or developer to contribute: Depending the surrounding purchase environment and the nature of the property deal you may ask the seller or developer to financially contribute in your closing costs.
  4. Explore rebate or incentives: Some banks or lender in many cases offer rebate or incentives to the potential customers or first time home buyers. Therefore, you should ask your lender or bank about this rebate or incentives while looking for a mortgage loan for buying real estate property. 
  5. Shop around for lenders: Take your time to shop around the lender to choose the perfect lending company or authority for lowering down your closing costs.
  6. Close towards the end of the month: You can lower down the amount of closing costs by closing it at the end of the month. If you close the loan at the middle of a month then you may require to pay the first mortgage on the first of the following month. Therefore, you should always try to make the close at the end of the month.
  7. Check into Army or union discounts: There is discounts for the army or military person while buying a home. 
  8. Home owner’s insurance option: Before selecting the insurance option while looking for a mortgage loan check the insurance policy. In many cases you may require to pay a portion of the premium along with closing costs. You may choose less expensive insurance policy for lowering down the closing costs.

How to Budget for Closing Costs?

Before you starting the search of property you should try to get a pre-approval of mortgage from where you will be able to understand what amount of closing costs you would be required and how much ranges home you can afford.

If you are not able to manage a pre-approval mortgage then discuss with your real estate agent or other real estate specialists for getting the basic ideas about the amount of closing costs. You must be aware about closing costs because in most of the cases the amount of closing costs is observed as higher than the buyer’s assume. 

On a Final Note

The amount of closing costs may also depends on the state’s laws and regulations. Although the closing costs depends on a number of factors but by making yourself as a conscious buyer you may successfully reduce the amount of closing costs.

Therefore, it would be better for you not to leave the entire matter of closing costs at the hand of seller rather take your time and follow the above mentioned ways to reduce your closing costs.


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